January 2008 Newsletter
Transporation Ignored By Presidential Candidates
A passel of candidates for the presidency from both
parties is running throughout the length and breadth of
the United States telling all who would listen what’s
wrong with America and how they would fix it. It is
instructive to go beyond their hot air and read their
voluminous web sites. You will discover very quickly
almost every problem faced by our nation is discussed in
exquisite detail and how they would solve them. Want to
know Hillary’s views on Iraq? Read her web site.
Romney’s thoughts on the economy?
McCain’s views on the military? Obama’s convictions on
health care? It’s all on their web sites. One critical
problem, however, is absent on each candidate’s web
site. Complete silence reigns.
"Does it take a dramatic
failure like the collapse of a
major bridge in Minneapolis
earlier this year to wake up
the candidates?"
That critical problem is the nation’s $1 trillion
transportation infrastructure. All of it is aging with
largely inadequate maintenance the rule rather than the
exception. Conservatuve estunates are that it would take
$200 billion to fix the problem. Why aren’t our
candidates at least discussing this critical situation?
A problem that could negatively affect our nation’s
prosperity and economic health. Does it take a dramatic
failure like the collapse of a major bridge in
Minneapolis earlier this year to wake up the candidates?
Perhaps this lack of interest by both Democratic and
Republican candidates reflects the general disinterest
of our nation’s citizens. Perhaps we all take for
granted our highways, bridges, roads and tunnels that
tie our nation together. Most of us do not realize that
transporting of people and goods has been the basic
underpinning of the U.S. economy since the railroads
first spanned our Continent. Today, surface and air
transport remains the lifeblood of the United States. It
must not be allowed to crumble or wither away.
Candidates for our highest office must lead, not follow.
They must issue a call to action in no uncertain terms
to reinvigorate the nation’s vast infrastructure; just
as President Eisenhower did in 1956 when he proclaimed
the National Highway Act. All of us in the business of
logistics must emphasize to all of the candidates the
importance of our transportation infrastructure and
suggest methods to place it in superb condition. The
ability of our people to travel about the country in
comfort and safety and the efficient transport of cargo
is far more important to the well being of the United
States than events in nations 10,000 miles away.
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Will Australia Follow Europe’s Lead With Open Skies?
Later this year, the first results of the recently
concluded “open skies” treaty between the European Union and the
U.S. will take effect. Airlines flying the key North Atlantic
route will have much greater freedom in number of flights and
choice of destinations.
Will Australia follow Europe’s lead and conclude an open skies
arrangement with the U.S.? The question takes on added
significance with the election of a new Australian government
and free market advocate Kevin Rudd as prime minister.
Currently, Qantus dominates the U.S. Australian market with a
huge 80 per cent share which to a large extent is concentrated
on the Sydney-Los Angeles route. Open Skies advocates in both
countries point to the fact that the U.S.- South Pacific route
is the world’s fastest growing civil aviation market (not China
as most people believe) with a growth rate of almost 7 per cent
per annum. With open skies meaning greater competition, more
cities in the U.S. and Australia would be served. Both passenger
and cargo could quadruple during the next few decades if an Open
Skies agreement actually occurs. With our principal destination
Australia, CII would certainly benefit.
Despite all the trials and tribulations in our business, a happy
and prosperous New Year to all.
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New Blood In Australia
Australia remains the single most important market for CII. Any
major development in that country is of interest to our company not
only as it affects our business but also because of my personal ties
to that nation.
I was born across the Tasmanian Sea in New Zealand and spent much of
my early professional career in Australia. The recent election of
Kevin Rudd, head of that nation’s Labour Party after 11 years pf
political domination by John Howard’s Conservative Party, is an
earthshaking event in that South Pacific nation. It brings a man to
head a government repesenting a new Australia; one that looks not
only to its traditional partners in the West, but also to Asia, for
continued growth.
When I was growing up, if someone had told me the prime minister of
Australia would be fluent in Mandarin, I would have told him to have
his head examined. Yet, Rudd is fluent in that Chinese dialect and
has called for closer economic and political ties to that Asian
giant. On the political front, he considers himself a strong ally of
the U.S. but is bringing home the small Australian troop contingent
from Iraq unlike his predecessor who declared Aussie soldiers would
never leave Iraq as long as American troops remained there. Despite
leading the Labourites, a once socialist party, Rudd believes in
free enterprise and hopes to stimulate Australian commerce and
industry with a free market philosophy to continue that nation’s
growth. Rudd, however, has not completely abandoned his party’s
heritage and is a strong advocate of an active government in the
social sphere. Again, this is unlike Howard who felt the government
should stay out of people’s affairs as much as possible. Australians
obviously did not agree with him as they gave Rudd a resounding
mandate for change.
"Combined
with the
weakened U.S. dollar, it is a
great time for American
exports to Australia and CII
is benefiting from a solid
expansion in air freight
destined for 'down under'.”
Currently, Australia is in the somewhat paradoxical position of its
too strong dollar making it less competitive in world markets.
Combined with the weakened U.S. dollar, it is a great time for
American exports to Australia and CII is benefiting from a solid
expansion in air freight destined for “down under.” Australia is one
of the few nations where the U.S. traditionally has enjoyed a
favorable balance of trade. This favorable balance has become more
pronounced during the past year. CII expects a greater volume of
trade not only with Australia, but also with its “sister,” New
Zealand, well into the New Year.
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You Gotta Have Faith!
Faith is a very big commodity during the Holidays. It brings
people into churches to show their devotion. We also keep the
faith in the air freight industry, but in different ways. Faith
that airplanes will defy the laws of gravity and rise into the
sky. Faith that cargo destined for Hong Kong will not end up in
Rio de Janeiro. Faith that airlines are our “partners” and
always have the best interests of forwarders closest to their
hearts.
There are many more items of faith that affect our business.
Let’s hope they come to pass in 2008.
For example:
* Oil will drop to $60 a barrel allowing airlines to eliminate
their fuel surcharges.
* Even though airlines have ordered thousands of new aircraft
for delivery within the next few years, there will be no
overcapacity and prices will remain firm so that we all can make
a profit.
* Airline CEOs are in earnest when they state all new aircraft
will not add to capacity but that each new airplane in their
fleets will be for replacement purposes only.
* The U.S. Congress will pass an FAA authorization bill to fund
properly an upgrade of our ATC system so that cargo will not be
left on airport tarmacs because planes cannot take off due to
archaic flight rules.
* Heathrow will improve its miserable status as the worst major
airport in the world with the high percentage of luggage and
freight now lost to becoming a distant memory.
* No new all-cargo airlines will be announced in ’08 so that the
erosion in yields will stop its ghastly decline.
If only a quarter of the above articles of faith come to pass,
air cargo will have a better year in 2008 than the previous one.
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Give Me On-Time Information; Up Front
How about the airlines providing more flight information so
that we forwarders can then make more informed decisions
when moving our freight? We deserve some respect as
forwarders are the airlines’ best cargo customers. Have the
airlines give us more information up front about the flights
which were late the previous few months—which may indicate a
pattern.
Why don’t they give the forwarder that information
automatically when we check flights so that we can better
judge which flights are more reliable?
"Why
don’t they give the
forwarder that information
automatically when we
check flights so that we
can better judge which
flights are more reliable?"
If we know, for example, that a LAX-HK flight on a
particular airline is consistently late, would we book it?
Probably not.
Cargo agents at the airlines will tell you which flights are
late, but only if you ask. This kind of vital information is
not even an option on most airline web sites, although a few
are starting to provide that information. U.S. Airways now
shows on-time performance for most of its flights and Delta
has announced it will do so in the New Year.
The ATA has recommended to all its airline members they
place on-time information on all flights on their web sites.
The DOT is considering requiring airlines to add this
information in new regulations. This isn’t “re-regulation”
in an onerous sense but rather gives freight forwarders the
information they need to make informed choices about what
airlines and what flights we will use to better serve our
customers. The airlines should be happy to provide this
information to help their most important cargo customers.
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Does Fred Smith Know Something We Ordinary Mortals Don’t?
FedEx recently announced higher air shipment rates by almost 7 per
cent for 2008, the largest increase for the company’s express
deliveries since 2001. Ground rates for the big package delivery
company also will go up in ’08, probably by a comparable
percentage. These substantial tariff hikes fly in the face of a
growing consensus that the U.S. will face recessionary times in
the New Year. The worst time to raise rates on any product or
service is when demand is weak. Ask any economist. Yet, Fred
Smith is marching boldly ahead despite this conventional wisdom,
confidently convinced that his company’s performance is so
superior, customers will swallow the rate hikes and continue
giving FedEx their business.
Perhaps Smith should read his latest financial statement which
reveals a decline in profits. Domestic air express is the
weakest division of the company with actual declines in volume.
Evidence is overwhelming that greater number of customers are
opting for FedEx’ cheaper ground service rather than its more
expensive air. With a softer economy, the orthodox response to
lower demand is to cut rates. Larger FedEx customers probably
will negotiate quietly special deals but smaller shippers will
bear the full brunt of these increases.
It will be interesting to see if Smith’s rate increases stick
later in the year if FedEx air and possibly ground shipments
show greater weakness. Smith has walked on water in the past,
defying conventional wisdom. Perhaps he knows something we
ordinary mortals don’t.
"Fred Smith is marching
boldly ahead despite this
conventional wisdom,
confidently convinced that his
company’s performance is so
superior, customers will
swallow the rate hikes and
continue giving FedEx their
business."
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And to all, the best of New
Year’s!
Julian
Keeling
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